Second Distribution Under $200

[Susan S.]

A terminated participant received a total distribution of his balance in a 401(k) plan. The amount distributed was over $5,000. Subsequently, he received an additional contribution of less than $200 due to a match true-up. For his second distribution, which will be in the same taxable year as the first, is he required to receive a rollover option due to the amount of his original balance?

[GMK]

Since the balance is below the cashout limit, he must take the distribution.

He has the option to roll it over unless the plan prohibits rollovers of less than $200. I don't know if the plan can consider the true-up as part of the original distribution in order to allow a rollover even though the amount is small.

If the rollover option exists, our cover letter would say that the distribution will be rolled over the same as the previous rollover unless we hear otherwise from him on or before some date, say 30 days out.

[Kevin C]

Since this distribution will be in the same year as the prior $5,000+ distribution, he has to be allowed to rollover this less than $200 distribution. A similar total for the year rule applies for withholding if he doesn't roll it over.

1.401(a)(31)-1 Q-11Will a plan satisfy section 401(a)(31) if the plan administrator does not permit a distributee to elect a direct rollover if his or her eligible rollover distributions during a year are reasonably expected to total less than $200?

A-11: Yes. A plan will satisfy section 401(a)(31) even though the plan administrator does not permit any distributee to elect a direct rollover with respect to eligible rollover distributions during a year that are reasonably expected to total less than $200 or any lower minimum amount specified by the plan administrator. The rules described in §31.3405©-1, Q&A-14 of this chapter (relating to whether withholding under section 3405© is required for an eligible rollover distribution that is less than $200) also apply for purposes of determining whether a direct rollover election under section 401(a)(31) must be provided for an eligible rollover distribution that is less than $200 or the lower specified amount.